Episode #0109 - How to charge creative industries like graphic designing

Pricing College Podcast

In today's episode, we want to ask a question about some of the creative industries and the best way to charge for graphic design creativity, like designing logos. This is a question that somebody asked us recently, so we want to explore it today.

We asked this question essentially, a question that a lot of people ask us how do we charge for a particular service or our products? Often the debate goes “ Oh, should we use a cost plus, especially for all time and materials billings, especially for professional services?" for things like design, logos, websites, all that stuff. Or should we make the bold move and try and charge based on value-based principles? And often, we, being from a value-based pricing firm, would strongly advocate choosing that particular method or methodology. But listening to the feedback from designers and practitioners, we'd like to explore how sometimes value-based pricing may not be feasible, and how sometimes cost-plus pricing, if cut and sliced differently, can deliver profitability.

Do you think you want a new logo for your website? I think there are a few concepts and issues we need to discuss here. So say you want a new logo for your website and someone decides how are they going to charge you. Are they going to charge you based on time and effort? Or is it based on the value this logo will provide? It's very difficult to work out what value a logo would provide in advance, certainly, especially if you're a graphic designer, you probably don't know anything about the company you're dealing with. You don't know how big it is if it's a startup, so there's a real issue. And also, as a graphic designer, are you dealing directly with the person or are you going through a website? So if people have all the materials and that's how they bill it, you've got real issues there. Because in the new Internet era, you're competing against people. If you're based in a high-cost environment, like Manhattan or Central London etc. People in cheaper areas would have a much lower sale price potentially than you would. So are you dragging yourself down to that level? The other thing, of course, you're saying is, if you get quicker like how do you price the fact that you're getting better at your artwork you're getting more experience, your quality is for increasing. Even if you could do the artwork quicker, does that mean that you charge less for it? It really, logically doesn't make an awful lot of sense. The only way I think that would work is if you're using a fake method. So to some extent, you're just you're doing a fake medical notice, five hours on average, just as a justification methodology, but the reality of it is the person who's buying it from you. It's not like you're a lawyer in a big firm who can talk about their hours and how many hours they're working like the person buying the product has no concept or idea or realistically doesn't care how much time you spend spent on this or not.

It's funny, you should say that because even lawyers use time materials as the basis for their price calculations with customers and customers don't care. There is a little bit of scepticism about how time is calculated in that regard, hasn't been overinflated because both sides of the equation don't think that the price is justified. Maybe on one side, the lawyers are thinking we should have gotten a higher price for this. The problem is more complex than we scoped out, etc. And the customers refuse to sort of listen to that, and they just want the outcome. Regardless, the same things happen in design. And when I think about it and the feedback from designers, a lot of them, especially the new designers, are saying, "Ah, cost plus might be better for us because we are not really that familiar and comfortable." sort of justifying the value of our offer to customers. Maybe selling is not their skill set. They haven't thought about the value that they provide. And some even argue that we don't have a huge portfolio. We haven't got that track record to be able to showcase to our customers. Here we can see that there's sort of a lack of confidence in their ability. Potentially not in the skill set, but potentially in the business acumen. And also, there's a lack of confidence that may or may not be true being communicated to the customers. Again, since you are new, you may not be good at this. So why would I give you the money for that? But again, this is business. A little bit of like resilience training, you have to take that with a pinch of salt, because like really, what is the value of a logo? Well, if it's a good logo, you'll instantly know it's a good logo. It meets expectations that capture the essence of your business and your brand and that feeling that it is all in one visual glance and it attracts people that you want to be drawn to your business. So it has that segmented type of appeal to it. A designer can't show this before the actual engagement but during the sales process. I'm thinking of 99 designs here a customer can go, look, this is what we're thinking to designers and then they deliver the sort of an idea or a sketch just to outline how they think and capture what you've just communicated to them. And from that, you get a good strong sense. Whether they are seasoned professionals, designers or newbies, whether they can do what you want and a customer can get surprised and delighted and overwhelmed by other people's ideas. It supersedes their imagination, and that's what you're paying for. That's the real value of the transaction. And sometimes, if you limit that transaction to time and materials, you just end up commoditising the value that you offer pretty much because you're not confident in your ability or your business skills.

I think back to when I was one of our previous existences. I was an accountant and I worked at Deloitte and Touche. I got to what revenue would be globally, but it must be in the billions. Then they went through this process of rebranding and came up with a wonderful idea for Deloitte Green Dot. Deloitte full stop or a period of wherever you want to call it. Has a company brought in any extra revenue due to that new logo? I don't know, maybe they have, but it seems far-fetched. But I remember the time I think the story was that they'd spent over a million dollars or a million pounds sterling on that rebrand, clearly an attainment material basis. What are the required materials? Is it the research? Is it the analysis? Is it the learning? You're getting into the old story with Nikola Tesla and Henry Ford, where there was a rattling in the wall and Henry Ford brought Tesla in to try to fix it. And he walked down the lot of the wall, spent two minutes finding a hole in the wall and giving it a tarp, and the problem was solved. And then he charged $10,000 to Henry Ford. And Henry Ford says it only took you two minutes and he goes, "Yes, but it's the expertise, the knowledge, that's where the cost goes." I think, again, I gotta get into the idea of, like, also, if you think about the concept of another creative industry, which is architecture, People like Norman Foster, who is probably the most famous architect in the world, I assume, is one of them. Calatrava will be another one to win a lot of major prestige projects. They get paid more than other designers. Keeping in mind that they probably don't do any work on these projects at all. No, they probably have teams of young architects working on them. But clearly, they're winning these things based not always on design but often based on celebrity status and the value that we peripherally value, such as prestige status, confidence aside, that the company is moving in the right direction. Realistically, if you're a McDonald's or a major corporation who's looking at a rebrand or a new logo, they're not going to give it to someone just based on being cheap. I don't think cheapness is even going to come into it. You're looking at the segmentation of your market who you're catering to, you know, and if you're going on time, that cheapness, maybe that's the right approach mark to market at the lower end of the market. But if you're hoping to rebrand Qantas or British Airways or do the logo for something else, then you need to give the people confidence that it's the best in the world. That you're prestigious, that people will know where it's come from and have confidence in that and buy into the project. So it's almost like high quality or luxury product. There is a luxury product aspect to it. My view would be that if you want to have a sustainable career in this business, you have to build your career. It’s the thing you have to build your prestige, build your market knowledge, or boost your reviews on your website. So people come to you and they are coming to you for a reason. Not just because you're cheaper or you can do the job, but they're coming to you because they believe in interest in the product you're making.

I think it's a mistake to think that you need the experience to gain confidence to get more customers. I often think that experience in itself, like it's an indicator of potentially that you're able to potentially generate value for clients, but it's based on past precedent. Customers that look at CVS are looking at them to gain a little bit of confidence in you, but the confidence will happen when they see your ideas or SEE YOU THINKING and working through problems with them, and they'll see where you're going with it. I think there's confidence in your ability to be able to discuss that type of problem with your customers rather than thinking others are better than you. Are you the cheapest in the market? It is very commoditised. You're wasting your time with that type of thinking. You have to be focused on the customer's needs. And you'd have to be honest with yourself sometimes. Am I able to serve that customer because you may not have a clue about what they're getting? If you're just playing along with that, then you're wasting everybody's time. So yeah, there's an element of honesty and confidence in your ability to read the situation and know your target market. If you don't feel that you've got the skills to do it. Then you've got to think about where you can be best served and build up that competence and resume if that's where you want to go. If you're going to use cost-plus just be very, very careful. It's going to commoditise your offer and it's going to decide that the relationship with your customer is very transactional. What is value-based pricing? It's a conversation based on value. What value can you generate for your customer? Through your design, through your logos, and if you know that you can generate a lot of value, then charge that premium for it. If the customer is still not sure and or you're not sure that you can do the job. Maybe the scope or the brief is still quite confusing, then potentially think about a new revenue model as a way of charging. Not that you can charge using value-based pricing, but think about maybe a retainer model or a different type of subscription model just to lower the risk from both ends. That potentially would help, and then they could see you in action and you're contracted for some money. That way, you both gain experience with each other. You lower the risk and you can show what you can do for them. And then you can It's sort of motransparent, you can build a relationship and trust in the end product.

You have to consider again, in value-based pricing, what are you delivering? Sometimes people don't just want a logo. Maybe they want the marketing team who are working on this project that they want to feel special. I remember another time I was working at a company, a waste company, and they were developing a new website. And they had a whole team of creatives come in to talk about the colour scheme and all this stuff. I remember one guy was wearing a beret, and it was just preposterous that they were throwing people at something that one person could do. You have to fit the criteria that the people want, that they're looking to buy. Big companies potentially if there are a lot of people working on it. Think about this, if you're a big company and you have a big rebrand, if it goes wrong and then the chief executive finds out that the logo only cost 500 bucks. You can be pretty sure that the market executive is going to be in a lot of trouble with that or the branding person. So there'll be a high price hike, which will give some assurance also, those peripheral values. Given that, you think about what people want. They want the product and the logo. But the chance that the perfect logo will come up on the first go is very low. People may hit the first logo, they may want to slightly change it. So there'd be so many things like infinite reruns, turnarounds overnight, throwing them in different shades, being available at all times. Making sure that it's done in the way they wanted. Good people can be very demanding. And if that's demanding, are you able to provide that? If you can provide that, there's a higher price tag and ticket with that. I think that the ins and outs of the basics of actually doing the logo, and we're using the term "logo," but this can be used in different contexts, also in the fashion industry. Theoretically, you could buy an item from Chanel that might cost 100 or 1000 times the price of something cheaper and sharper like H & M or somewhere like that to the educated eye, and might even be identical, but it's those small nuances that provide infinite differences and the infinite different ability to sell. Admittedly, someone or Coco Chanel, they don't come along every day and that expertise that's what makes people real business leaders and successes. And just because you're the best local designer certainly does not indicate that you will be a great business and you need that marketing skill. You need that selling ability and you need everything

I suppose this is the difference between just designing the logo and creating a business. It's a different skill set. Often people start businesses without really identifying their core market and understanding sources of value in the market. They have no clear value proposition and then they build a business. Literally through panic and fear. Just go I'm going to sell anything to anybody at any price. Just because I sort of need the money and that is not a sustainable sort of way to run a business and customers don't like that. Using pricing methodology as a way to or if you're going to use cost-plus, by adding on hours to the overall project, just to get charged customers more, it's just not a great way of doing business because you side tracking away from the true value of your offer. And that's because you've brushed past your value proposition and you just shooting anything, you just want any work Business is tough, that's why confidence and hard work and learning business skills will come in handy just to de-risk the whole model and might give you confidence that you need to take to get better at that because have confidence in your delivery skills. You're a designer, you thought you could do it when you started when we started the business so just remind yourself of that and think carefully of what your core area and niches are and where you want to go with that. Often in design, It's where your passion lies. So think about that. What excites you about that? Why are you doing what you're doing? And that will help you and then you can see and then that sort of helps you in a way that segments the market because other people will be attracted to that attracted by that particular skill as well. And then over time you're going to niche and be known for that particular thing.

I would also think stuff like payment terms you could offer. You don't stop until the customer is completely happy with the project. Those things are de-risking for the buyer like a lot of people buying a logo or brand name but they're coming to you because they're not creatives they want them to blow them away. You have to maybe guarantee to get from there in that sort of thing you want to you probably want to be working exclusively with people do you want to be putting in a huge amount of effort and not getting the sale. That's something you want to consider also, but I would suggest you find some method of de-risking it for the buyer. Once you build your portfolio at the beginning, you have to have a portfolio, you probably don't have cheaper you're probably broke for lower quality customers. And then you're moving up into the big leagues. If you're successful, bigger companies and hopefully at the end of the day, you're doing AmEx and you're doing United Airlines and all this sort of stuff. So, but you got to start somewhere and you can't know value. The peripheral value is built up over years. But you got to start somewhere. unclearly building a portfolio having logos and brands out there. That's very important, but it's step by step.